Question

Pam exchanges a rental building, which has an adjusted basis of $520,000, for investment land which has a fair market value of $700,000. In addition, Pam receives $100,000 in cash. What is the recognized gain or loss and the basis of the investment land? a. $0 and $420,000. b. $100,000 and $420,000.

c. $100,000 and $520,000.
d. $280,000 and $700,000.
e. None of the above.

Answer 1

Option (d) is correct.

Step-by-step explanation:

Given that,

Fair market value = 700,000

Cash received = 100,000

Adjusted basis = 520,000

Recognized gain:

= Value received - Adjusted basis

= [Fair market value + Cash received] - Adjusted basis

= [700,000 + 100,000] - 520,000

= $280,000 Gain

The basis of investment land is equal to the fair market value of the investment land.

Basis investment land = $700,000